India’s Latest Penny Stock: Kingfisher Airlines

Kingfisher stock fell 97% since its peak, and 75% in the last 12 months. Pictured, a Kingfisher plane parked at the Delhi airport, May 2012.

The once high-flying shares of Kingfisher Airlines crashed to their lifetime-low of 9.62 rupees ($0.17) on Tuesday afternoon and closed at 9.66 rupees on the Bombay Stock Exchange.

In India, when shares fall below their face value of 10 rupees, they are generally considered to be penny stocks – a phrase borrowed from the West to describe small stocks that are very volatile.

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Kingfisher’s ailments are well-known: it has been making losses since it was founded in 2005, and high costs of fuel and interest costs have lately made that worse.

In recent months, Kingfisher has had to cancel several flights as many of its employees have gone on strike for varying periods of time in protest against the company’s failure to pay their salaries on time.

This is quite a turnaround for the company, which was once India’s second-largest airline by market share. It is now the smallest.

Its stock peaked in December 2007, at 316.60 rupees per share. At the time, the stock was listed as Deccan Aviation Ltd. In mid-2007, UB Group’s Vijay Mallya purchased a majority stake in Deccan. Deccan Airlines was merged with Kingfisher Airlines in 2008.

Kingfisher stock fell 97% since its peak, and 75% in the last 12 months.

In comparison, the stock of Jet Airways (India) Ltd. fell 30.1% over this period, to trade at 362.70 rupees, while SpiceJet Ltd. stock is down 17.5%.

One reason for the sharp selloff in Kingfisher stock recently is that LKP Finance Ltd., a non-banking finance company in Mumbai, has been dumping it in the open market.

LKP held a 16.5% stake in Kingfisher as of mid-June, mostly raised via the conversion of warrants. It has pared the stake to 9.9% last week, according to regulatory filings.

Rakesh Shah, an investment adviser at LKP Finance, said they have been selling the stake because they are finding better investment opportunities elsewhere.

He said that unless the Indian government allows Indian airlines to get greater investment from foreign investors, there isn’t much hope for Kingfisher’s stock.

Other investors think that even foreign investment will not be enough. Given Kingfisher’s huge debt, they say even foreign airlines could struggle to turn around its fate.

“Aviation is one industry which has not picked up well globally,” said A.K. Prabhakar, a senior vice president with Mumbai brokerage Anand Rathi. “We have seen many defaults in airlines, we are advising caution on airlines stocks,” he added.

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